COVID-19 Debt and Bankruptcy Infrastructure

26 Pages Posted: 23 Sep 2021

See all articles by Robert K. Rasmussen

Robert K. Rasmussen

University of Southern California Gould School of Law

Date Written: September 22, 2021

Abstract

The COVID pandemic put unprecedented pressure on all economies around the world. Many foretold that this economic dislocation would lead to an unprecedented number of corporate bankruptcies. This did not happen. The American government and other governments responded with extraordinary measures. Congress pumped trillions of dollars into the economy, both in the form of grants and loans, and the Federal Reserve ensured that interest rates were kept at historically low levels. While these measures allowed companies to ride out the worst of the pandemic, they did have consequences. Namely, many large companies were left with unprecedentedly large amount of debt on their balance sheets.

Perhaps a robust economy will allow the companies to grow their way out from under their debt burden. But perhaps not. To prepare for the possible increase of large companies filing for bankruptcy, Congress should act now to build up a bankruptcy infrastructure sufficient to handle an influx in cases. In particular, Congress should require that every circuit create a “business bankruptcy panel” designed to administer the Chapter 11 filing of large companies. As is well-known, three bankruptcy districts currently serve as dominant venues for large cases – the District of Delaware, the Southern District of New York and the Southern District of Texas. It is by no means clear that these three courts could deal with a significant increase in caseloads. By creating expertise across the country, the system would be prepared for any future rise in cases. A secondary effect of such a change is that it also has the potential to ameliorate some of the concerns that have been raised over the years by the dominance of a small number of venues when it comes to large corporate cases.

Suggested Citation

Rasmussen, Robert K., COVID-19 Debt and Bankruptcy Infrastructure (September 22, 2021). Forthcoming, Yale Law Review Forum, USC CLASS Research Paper No. CLASS21-42, USC Law Legal Studies Paper No. 21-42, Available at SSRN: https://ssrn.com/abstract=3928944

Robert K. Rasmussen (Contact Author)

University of Southern California Gould School of Law ( email )

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